Tax Debt Could Cost You Your Passport

Barry Weisman, Tax Partner, guides us through the process to that extreme eventuality.

"There really has to be willful blindness on the part of the taxpayer to get into this kind of situation," says Barry Weisman of Anchin, Bloch and Anchin. "Just truly ignoring or being in denial about an IRS assessment."

The IRS has only begun sending out notices to taxpayers with that level of debt this year. Several states have resorted to suspending or revoking driver's licenses to coax the payment of outstanding tax debt -- with Weisman noting that New York does so for debt of $10,000 or more -- but the State Department's failure to issue or renew your passport after receiving certification from the IRS has serious implications for a very narrow group of U.S. citizens. Unfortunately for those folks, a large portion of their subset tends to live outside the country.

...

Weisman reminds [taxpayers] that any outstanding debt would have to be assessed first. If there isn't an outstanding assessment, Section 7345 doesn't apply. If there's been an assessment, you, your attorney or your accountant can request a transcript of your account from the IRS just to clarify how much you owe.

...

That latter category typically consists of people at Weisman says are "playing the statute-of-limitations game." They know that the IRS only has ten years to collect on assessments, thanks to its statute of limitations, so they'll attempt to wait it out. Unless the Justice Department reduced the assessment to a judgment, typically those folks could get away with it. With their passports on the line, they can't necessarily wait it out anymore. Of course, there are also somewhat less devious reasons for falling into this category.

"There are people who owed a lot of money on their tax return for improper withholding, no withholding or they just didn't pay estimated taxes," Weisman says. "Often you see this happen with attorneys: They'll withdraw from a partnership and won't put enough money away for taxes and owe a lot of money and, they too, could be seriously delinquent.

...

The IRS has issued no guidance on this new passport rule, and Weisman notes that no one has had their passport revoked as a result of it yet. The IRS and State Department are two massive bureaucracies on their best day, but without guidance, there's no specific place for the IRS to send a certification to, there's no instruction for what to do in case of a district court filing and there's been no indication by President Donald Trump's administration that they'll be any further guidance on this matter going forward."